Friday, August 20, 2010

Goodbye Post

This post will mark the end of the line for the CynicusEconomicus blog posting. It is with some sense of regret that I have reached the point where I do not really have anything new to say to readers, and risk becoming yet another commentator on 'events.' As it is, I am hoping to devote the time I spent on the blog to wade into the muddy waters of academic economics. I am not sure that it is possible to change views from the outside, so I will try to change the views from the inside. I am not confident of success, but at least it is worth trying.

When starting this blog, my aim was to inform as many people as possible of the dangers that were being hidden in the world economy, and in particular in the UK economy. My worry was that, somehow, we had lost sight of where real wealth creation came from, and had mistaken the accumulation of debt for wealth.

As time progressed, I started to look for the underlying drivers of the growing crisis in the economies of the developed world, in particular the US and UK. I started reading ever more widely, and started thinking about what had really changed in the world. I identified that massive input of labour (defined as labour combined with technology, capital, and markets) into the world had massively increased, whilst commodity output had not increased sufficiently to meed the demand of new labour, and rapid infrastructure development of emerging economies. We had seen a massive supply shock of labour, and a failure to supply enough materials to satisfy the growing demands; the result, hyper-competition.

Much of my writing has flowed from this analysis. This is the underlying reality of the world economy, and the driver behind the economic crisis. Sure, the collapse of the financial system was important, but this was a symptom of the underlying problems, and the failure to recognise the change in the world. Wealth creation has been slipping from the developed world to the emerging economies, and the financial services industry just recycled the growing wealth creation from the rest of the world into developed world debt. That this was unsustainable, and had to end in disaster, and would provide a shock to the world was inevitable.

The problem is that, when the shock hit, the reaction of the developed world was to pretend that this was a financial crisis, rather than a fundamental economic crisis. If the banks could just be saved, we could move on and get back to business. The bailing out of the banks followed, and sovereign states expanded their balance sheets with debt. If only the developed world consumers would climb back on to the debt treadmill, economies would get moving again. However, when consumers failed to comply with this lunacy, governments stepped forwards to fill the void. Keynes came back in fashion.

The days of the 'big state' were back, and intervention was the new paradigm. Whether pouring printed money into an economy, whether pouring borrowed money into the economy, the state would solve all. Nowhere did we see anyone asking a basic question; why are we really doing so badly in the developed world? Surely, if our economies were fundamentally sound, then the situation would resolve itself. There have, after all, often been hiccups, so why is it so bad this time?

Instead of asking whether the structure of our economies might have problems, the answer was to imagine that, somehow, more state intervention might provide a solution. Borrowing more money from the new wealth creators was a solution. More debt would solve the hangover from too much debt. But why did we accumulate so much debt in the first place? How did our economies structure themselves around the debt accumulation? How many people were employed, directly or indirectly, as a result of the ever increasing rate of debt accumulation? What must happen when the rate of debt accumulation slows, as it surely must? And what happens when the debt accumulation goes into reverse, and payment of debt starts to overtake new debt accumulation?

Economies such as the UK and US were structured around ever more growth in debt, and that growth in debt was hiding the shift in wealth creation. When the debt growth stopped, the developed world economies were faced with their weakened competitive position. They had been consuming more than they produced, and the competitors were accelerating their advantages, even as the developed world economies were facing the reality that their economies were structured for debt based consumption. It is and was a 'double whammy' - increased competition and economic structures in poor shape to meet the competition.

This is the heart of the problem, and the problem that nobody seems to want to recognise. Some analysts pay lip service to the problem. Some bemoan the part played by the mercantilism of countries like China (including me). However, even without mercantilism, the hundreds of millions of new and competitive workers entering the world economy was always going to change the world economy. There was always going to be a shock when countries like China and India really finally entered the world economy.

Along the way, this blog has made some very accurate predictions, and a credibility sapping error on the timing of the fall of the $US. I have been endlessly surprised at the ability of policy makers to keep the plates spinning just a little bit longer. However, as many analysts are now pointing out, short of massive money creation, there is little left in the armoury of the policy makers. Recent stories are highlighting the potential return to the weasel worded policy of quantitative easing (QE), better described as printing money.

There has been much talk of austerity of late, in particular in Europe. For example, the UK is apparently on the road to austerity. However, when looking at what is taking place, what we are not seeing is any realistic austerity, but rather a slowing in the rate of growth of debt accumulation. The arguments for ongoing debt accumulation are somewhat puzzling in the context of what is taking place in the broader world economy. There is a belief that, somehow, real economic growth (as opposed to consumption built upon debt) will return to the developed world economies, and that this will allow the developed world to grow out of debt.

But what of the competition from the emerging economies? Is everything going to suddenly go into reverse, and the developed world will return to economic ascendancy? According to many analysts, it appears that they just believe this will happen. As if by magic, all will return to how the world used to be. But why should it? Is there some cosmic law that suggests that the developed world must succeed? A recent graph in the Economist (sorry, I can not find the link) showed how India and China were the dominant economies for most of history. If anything, there is a cosmic law that suggests that China and India must succeed, with the Western success a weird exception. A few centuries of economic dominance does not make ongoing dominance inevitable, and the rise of the Japanese economy is a salutary lesson in how fast a situation can change. The difference in the modern situation is the scale of India and China - the amount of potential that is still untapped.

Within this context, the ongoing borrowing and profligacy of the developed world economies just does not make sense. The days of competition between high cost economies have gone - the developed world economies are competing with low cost economies. One way or another, the developed world must face that challenge. Borrowing money, printing money, and all of the other policies that are being enacted are simply delaying mechanisms. They are just means of hiding the falling competitiveness of the developed world.

However, even with all the policy actions, reality is still seeping in at the edges. I recently posted on the subject of the disappearing American middle classes. Slowly but surely, the standard of living of the developed world middle classes are falling, even as the middle classes of the emerging economies are rising. Whatever the policy makers do, the middle classes are moving towards a new middle, and that middle is going to be at a lower point than the developed world has come to expect as a right. It is a shift in the allocation of the resources of the world, a redistribution towards the emerging markets. In an article for Trade and Forfaiting Review, I discussed the TataNano as the herald of this great shift. It is a car for the new middle. we have just not reached that point yet, though we seem to be moving there ever faster.

So what does the future hold?

I am unsure. Not because there are no underlying principles that might be applied to the situation, but rather because the policy makers are unpredictable, and the markets have yet to confront the underlying changes in the world economy. The questions are how far the policy makers will go to keep the plates spinning just that bit longer, and when the contradictions of trying to support the unsupportable will finally emerge. With each day that goes by, with each new attempt to hold back the shift, the size of the problem grows.

There is only one real certainty. At some point, the plates will no longer be spinning, but will come crashing down. At that point, we enter a period of chaos. I am afraid that I have always found this to be worrying in the extreme. It is in times of chaos that opportunities arise for the world to take on a new shape, and that shape might be something that none of want to see. It is a time when fears might be stoked, divisions made, and suspicion and hatred stoked. In all my posts, this fear has been at the back of my mind. Whilst this blog has focused on economics, I have wider interests, and these include psychology, evolutionary psychology, history and political philosophy. The lessons drawn from these do not encourage me to optimism.

So it is on this very unhappy note that I bow out of the CynicusEconomicus blog. All that is left is to thank the loyal readers of the blog, and in particular those who have contributed so much to the blog with their intelligent commentary. Of particular note is Lemming, who has followed the blog from the start, and has always provided interesting comments. As one note, MattinShanghai was missed when it became impossible for him to view the blog due to Internet restrictions in China. Whilst not always finding ourselves in agreement, his views were always welcomed. Such is the nature of the Middle Kingdom that is going to play a growing role in the shape of the world.

I would name others, but am concerned that I might offend by not capturing all of those that have made a contribution. Those people will know who they are, and please accept my sincere thanks for following and contributing to the success of the blog. I sincerely believe that the quality of the debate in the comments section was responsible for the ongoing success of the blog.

I will leave the blog on a final point. I hope that the regular readers will remember the slogan of the blog, and keep it in mind as the optimists sell their fantasies:

'I just don't buy it....do you?'

Note: As the order of posts were wrong, I have deleted the post that follows and reproduced it here. As ever, I leave all posts, good or bad, as available. However, in this case the post was still on the home page, and the only way of correcting the problem was to delete it (due to some oddities of the blogger system). As the blog is ending, I needed the post above to be on the home page.

Papering over the Cracks

Sometimes, I look back on what I have written, and look to what is appearing in the media today. I keep finding that what I have said eventually becomes mainstream thought. I am writing two posts today, one on China, and one on instability. I will apologise for the fact that both of the posts are, up to a point, covering old ground. I will admit that I am finding it ever more difficult to say anything new. Everything that I expected to happen seems to be taking place as if in slow motion. There have been some twists and turns on the way, in particular the ability of governments to prop up a broken system have been a surprise, along with resiliance in the belief that all might go back to 'normal' - meaning the developed world just getting richer. As time progresses, the new 'normal' is becoming ever more evident, and it is not the 'normal' that so many expected.

Each of the stories above, taken in isolation, would not cause undue alarm. However, when considering them all together, then there is a worrying pattern emerging. It should also be remembered that all of the above are just examples. What is very clear is that China, and the Chinese government, are actively pursuing a policy of unfair trade at home and abroad. Quite simply, they are using economics as a tool of power rather than just enrichment.The stories that I am referring to are the many examples in which China has sought to tilt the economic playing field in their favour, regardless of the interests of others. In a recent post, I made the same point (yet again) and noted one commentator on the Seeking Alpha copy of the post grumbled at how all countries indulge in such behaviour (suggesting I was an idiot for thinking otherwise, if I recall correctly). Whilst I accept that all countries try to find a favourable outcome, it is up to other players in the world economy to put a constraint on activity that is tilting the playing field too far. This is the problem; there is a very strange passivity in the face of Chinese mercantalism, with no country willing to face the country down.

As time progressed after the post quoted above, I have pointed out many examples of the way in which China is successfully gaming the trading system, and have continually argued for governments to take action to confront China. I pointed out the way in which China encouraged the movement of production and technology into China, by restricting access without such movement, the unfair implementation of laws, the weighted dice of who wins contracts, and a host of other small and large measures which discriminate against Western business. In the light of these many complaints I have made, it is interesting to see a series of articles in the Telegraph that are devoted to China's economy.

In one article, a tax and legal advisor lists a long litany of problems for overseas businesses in China, where local firms get support and lax implementation of the law, whilst overseas companies get the full brunt of the detail of the law. This is what the author concludes with:

The truth is that tax avoidance by domestic businesses is rife and it creates an unlevel playing field for foreign businesses that are strictly monitored. These issues – and there are plenty of others – amount to what I call the "Communist price". Because business in China is so intertwined with the state, foreign companies can be shut out, both in terms of market access and in revenues. Dealing with the issue, as BASF and Siemens have done, through the German government shows that companies are beginning to understand that some issues can only be solved politically. China has not only increased its cost of business through tax and the regulatory environment, it is also prepared to flex the muscles of the Communist to its advantage, and is increasingly doing so. Businesses new to China will also need to review their business plans. I would recommend, once the financial research has been carried out, adding at least another 30pc of intangible costs to the bottom line, and preferably 50pc. While that may seem a lot, the reality will haunt those who do not factor it in. This kind of behaviour has been going on for years. However, it seems that China just keeps on getting away with it. This is not the end of the problems confronting the developed world in relation to China. It has not become virtually essential for every major company, and major economy, to have a China strategy for penetrating the Chinese market. However, the unbalanced policy of China ensure that real success in China is relatively rare, as another article points out [my emphasis]:

The first is China’s penchant to promote national champions over foreign competitors, often using backdoor regulations in breach of the spirit of their WTO commitments – the wind turbine sector or the insurance market are two prime examples. Second is that Chinese companies, protected or not, are becoming a great deal more competitive, producing products that nearly match Western ones and at appreciably cheaper costs Third, costs are rising in China (labour and inputs) and as a result margins are shrinking. This explains perhaps why British companies in China get rather vague when it comes to discussing how much actual profit they make here.This is much the same problem as I saw when working in China and whilst dealing with a large numbers of multinationals. This is going back a long time, but I remember a forlorn manager at Unilever expressing surprise that they were struggling against the local competition. That was 1999. Chinese companies are now a lot better, a lot more advanced than they were then, as another article illustrates:

This 'smart home’ concept is partly why Mr Letheren is in China. He’s hoping to piggyback into the homes of the future using the systems set up by Chinese behemoth manufacturers. “We will stream audio over the network to speakers that are smaller and more discreet. There are quite a few interesting angles. Multi-room systems can distribute audio and video around the house. There are some synergies with some very big appliance manufacturers,” he says. The other reason is more worrying. Audio Partnership is now trying to find a Chinese company to help it design its products. Not only, it seems, has manufacturing migrated to the East, but design skills, once the pride of London, are also becoming cheaper to find in China. “I am looking for design skills and maybe companies that are doing overlapping products so that we can use some of our technology with some of theirs,” he says. As hi-fi companies move away from traditional boxy sets towards wireless technology and iPod-integrated systems, it makes sense for companies to rely on Chinese firms to roll-out new designs. This flies in the face of the idea that the poor Chinese would provide the labour, and that the higher value added would sit in the hands of the developed world, who would do all the intellectual heavy lifting. This idea, so fashionable for so long, was always a delusion. Product design and other business services such as financing, will eventually move to where the 'action is' and that is not currently in the developed world. Whilst some companies are still working to this paradigm, the Chinese will eventually catch them up. When a company outsources function x, y, and z, the great fad/fashion of recent times, they also transfer the processes, systems and knowledge to the company to which they have outsourced the function. In doing so, they may make short term gains, but will eventually fuel new competitors. For example, if you can manufacture a product for a company, it is only a matter of time before it becomes apparent that you might make more money manufacturing your own products.

If you add into this mix the complete disregard for intellectual property in China, allowing companies selling within the internal market a head start, then it is apparent that China will continue to accelerate up the value chain (not to mention the cost advantages for producers who disregard intellectual property rights).

When looking at the articles appearing in the press, the reality of the mercantilism of China is finally being taken seriously. I have not, of course, covered another topic that I have often discussed, which is the manipulation of currency. I will leave that for today. I will leave the quotes with a final comment from one of the articles:

as Jeff Immelt the CEO of General Electric observed a month or two back – that foreign business will ever be allowed to ‘win’ in ChinaQuite simply, we have allowed a state to enter the world trading system that is exploiting every means at its disposal to tilt the world system in its favour. Thinking back to the commentator on Seeking Alpha, he has got is completely wrong. There is absolutely nothing to stop China's trading partners from acting against Chinese Mercantilism. Of course, each country will seek advantage in the system, but that advantage can only be gained if the trading partners acquiesce. China needs markets. Close the markets, and the Chinese state would be in deep, deep trouble. The trading partners have real leverage, but never use it.

Part of the reason is that, in particular, the US would not dare to, due to reliance on Chinese money for financing deficits. If the news that the US is starting to fund the deficit internally is true, this might be the opportunity to act. China still retains the power to decimate the US economy by dumping Treasuries, but what is the alternative - just let China keep getting stronger at the cost of US competitiveness? Another problem is the way in which China plays off the US and Europe, one against the other. Again, there is nothing to stop the two blocks presenting a unified position, except that they seem to dance like puppets on Chinese strings.

I must emphasise that I have nothing against the economic rise of China. Having lived in the country, I have a great affection for China, and in particular the ordinary people I have met. I wish them well. However, I see no reason why the developed world continues to accept the mercantilism. China would, in any case, rise. It would just be more gradual if they were forced to trade in the world system on a more even basis.

Note: I do not claim to be alone in these views of China, or the first to identify the problems of China in the trading system. However, I became aware of the problems, and formulated these views when first arriving in China in 1997, with experience on the ground. I must admit, however, that even I am surprised at the rate of China's ascent.

The Chaos in the World Economy

Back in 2009 I wrote an article for TFR magazine in which I suggested the following:

Just as with the profligate eighteenth century aristocrats and the emerging industrialists, investors have failed to recognise the real risks that are emerging and where the great opportunities might lie. In failing to recognise this change, investors are moving from one high risk, advanced economy into another; from one major OECD currency into another, as each piece of bad news about each economy is absorbed. What they fail to realise is that all of the advanced economies are at great risk during the transition and that there is no safe currency into which they might run. As such, it is possible to expect volatility in currencies as the reality of the transition for individual countries becomes more apparent, along with the implications for each currency. With the movement of wealth from one economy to another being built upon false assumptions, the markets will continue to react in unpredictable ways. So, as we move through the transition into a new shape of the world economy, currency-related volatility can only grow.This process of markets swinging from positive to negative on news has been going on for some time, but it now seems that the swings are becoming ever more erratic. The driver of the volatility in markets are the endless floods of news, each of which serves to raise fears about the major developed world economies. Europe sinks in and out of crisis, and the indicators for the US economy are interpreted as positive one week, and negative the next. Even the £GB has managed to be seen a new safe haven as the data from the US and Europe sends new jitters into markets.

Phil Jordan from Monument Securites said that even Britain was emerging as a sanctuary as yields fall to a fresh low of 2.84pc, though in this case the money is rotating away from the US. "Clients are selling US Treasuries to buy Gilts. The US economic data has been so bad investors are looking for other safe havens," he said.But in another article on the 20th August we find the following:

Sterling[Image] fell to a three-month low against the dollar as investors sought out safe haven investments and as traders weighed up strong UK retail sales figures against indications of more weakness in mortgage[Image] lending. The hot safe haven of the moment is the Swiss Franc:

Following the release of dismal U.S. housing data, the Swiss franc hit an all-time high against the euro for the second-straight day. The euro fell to a series of record lows, most recently at CHF1.2971 during New York trading. The dollar also fell to its lowest levels since January against the franc. As "dark clouds continue to hang over the U.S. economy," and investors hold a "more cautious stance on the yen prompted by the latest currency related comments from Japan," the Swiss franc is the most attractive of the three traditional safe havens, said Vassili Serebriakov, foreign exchange strategist at Wells Fargo in New York. My intention here is not to analyse the details of the markets, but to simply highlight the underlying fear that is driving markets. As most of the readers of this blog, like myself, are regular readers of the financial and economic news, a thoughtful review on the last few months will find that the hunt for safe havens is becoming ever more erratic. Even gold appears to be reviving strongly in the face of fears about economic instability. It seems that the world economic system is growing ever more chaotic, and some, such as Monument Securities, now appear to be seeing a major crisis brewing in the near term:

Stephen Lewis from Monument Securities said bond yields have dropped further than they did in the "flight to safety" extreme of late 2008, a sign that markets fear that underlying conditions are even worse today than they thought then. "Now they fear the global economy will remain in the mire for decades," he said. The following is from Morgan Stanley:

"The question is not whether they will renege on their promises," he writes of rich country governments, "but rather upon which of their promises they will renege, and what form this default will take."

[and]

Mares writes that while there has been much discussion of rising debt levels in rich country governments, even those scary-looking numbers understate the scale of the problem. "Debt/GDP ratios are too backward-looking and considerably underestimate the fiscal challenge faced by advanced economies' governments," Mares writes.[and]Just to drive the point home, however, Mares likens the deteriorating fiscal situation in countries like the United States and Japan to the fix many bubble-era Sun Belt house buyers now find themselves in. To extend the analogy, bondholders are like the banks the lent to these poor saps when the housing bubble was whipped into a frothy peak. "On the basis of current policies," Mares writes, "most governments are deep in negative equity."The point in all of this is that unsustainability of the current situation is becoming ever more apparent. If you read the article in TFR, I explain why process of realisation has taken so long, comparing the persisting belief in the developed world to the belief that a fading aristocrat is wealthy just because his family have always been wealthy. The implication is that once the true level of wealth of the aristocrat is discovered, then penury will follow. However, it is hard to overturn such beliefs, but it seems that people like Mares are looking under the facade, and finding a picture of illusory wealth.Whilst once people like myself (the pessimists) were a small minority, it seems there are additional new voices of concern appearing every day. It is perhaps these new voices that are driving the fear upwards, and driving the ever more erratic search for 'safe havens.' If this is the case, then there can only be more chaos to come, as ever more voices join those of the pessimists. In particular, when casting around the news on the world economy, it is becoming ever harder to maintain an optimistic stance for those who have been so inclined. As ever, it is just a question of where the tipping point might be, and what will be the spark that will finally create full blown panic.ConclusionI did not intend to link the two posts together when I started writing, but several links did occur to me. Perhaps the most important one is the lack of attention to the underlying problems of the structure of the world economy. China continues as before, and the debtor states continue accumulating debt and consuming more than they can produce, and more than they might ever repay. Nothing changes, and without change, stability in the world economy will be impossible. In the case of confronting China, and reforming at home, the developed world is confronted with potential for pain, and nobody appears to have the courage to face the problems and reform. It all comes back to this - at some point, hard choices will have to be made, and delaying those choices is the ambition of the politicians and policymakers. Better to try to paper over the cracks than deal with the underlying problems.....In other words, the same old story that has been the subject of this blog for so long. Papering over the cracks rather than fixing the real problems.

53 comments:

Thanks for your economic insights; it's good to see someone illuminating the rubbish. Good luck with the economists; academia sometimes has a depressing tendency to follow fashion rather than logic. Eugenics, anyone?

I've never commented much However have followed each post and will miss the blog deeply. I hope in future you will find the need/will to return for the odd few posts, so will keep the blog in my reader.

CE, I always knew there was something wrong with how the UK economy was supposed to work, but I couldn't get past the idea that everyone, including the media, thought that everything was just fine. Thanks to your brilliant posts and patient replies to my questions and comments I think I have begun to understand how things fit together. In fact, for the last three years I have felt like a privileged 'insider' while the rest of the world carried on in (blissful) ignorance.

I will miss the keen anticipation I always felt in checking your blog for new posts. Might you consider starting other 'Cynicus' blogs as you once did with 'Politicus'?

Anyway, all the best in your future work, and please make a return if things turn 'interesting'.

Thanks very much for what has been an insightful and sharply focused blog. It's really helped me to see the reality of our situation and it's so simple as to possess a certain elegance. I would say however that the raw survival dynamics of humanity have yet to come into play - those of war and geography. The western powers still hold the upper hand in military terms, but the advantage is eroding every day. A willingness to enter conflict over diminishing resources and the desire to protect a certain quality of life may be too hard to resist. I see a major war this century as being inevitable. Peak oil, climate change and global economic imbalance seal the deal.

Then there's climate change - the ace in the hole for Western powers. Emering economies will yet be blighted by a changing climate; drawing down resources to protect and destroying their wealth. Britain may be a blighted country in every other sense, but it will always be a green and pleasant land with a relatively benign climate.

I know it sounds weak to have this kind of thinking as a back stop, but that's what we've become - enfeebled by one sided global trade and growing inequality between rich and poor, only masked by debt handed out like bread to our growing army of unthinking masses led by an ideologically and morally bankrupt political class.

as ever, a few zingers that we all surely incorporate. thank you for your service and, i might add, integrity to stop when you see it as being no longer useful. what an example!

i agree that many in the same camp just continue to repeat themselves; miss important aspects about labor inequality; or never give up trying to predict a time-line that no one can be sure of: neocons in another lifespan.

I appreciate everything that you have set out to do and have achieved with your blog. You were a beacon to many confused souls who did not realise what was happening around them. I heard you banging the drum when everywhere else was quiet; now the noise is deafening from all quarters. You have achieved what you set out to do and have enabled me to prepare myself for what I, and others, must do in response to the dire circumstances which will inevitably unfold.

I am deeply grateful for your efforts and wish you well in your future endeavours.

Many thanks for your insightful analysis, and also for your courteous responses to my occasional comments and questions over the last 2 years. I shall miss your blog. You have often said you wished that you were wrong. The most I hope for is that your prognosis is wrong, for I think your diagnosis has been horribly sound.

Your blog has been a fascinating, thought-provoking and stimulating tour-de-force.

I have followed it for years and have found it to be very valuable.

You are not along, of course. You are a free market economic thinker very much in the mould of the Austrian School. It's not as isolated as the Keynesians would like to pretend.

I wish you the very best in what you do next and hope at some point to find you blogging again - about economics or something else. Please pop by my blog once in a while and leave a brief comment to tell us how you're getting along.

Thank you so much for your tireless and powerful commentary. I suspect you've had more effect and influence than you might guess.

It is with genuine sadness that I read you feel you've come to the end of the line with this blog. I have always appreciated the effort and honesty you have put into your high quality posts.

Plus I have always been at one with you with your view that argument and debate is fine, but should be conducted with courtesy and respect; this has drawn the perhaps the highest quality responses from correspondents anywhere.

This site has been a breath of fresh air and I will miss it greatly. Thank you, Cynicus, for what has been my favourite website, and the very best of luck to you in the future.

I'll miss this blog, too!If you start writing again somewhere else, I hope you'll mention it here, because I suspect the 'Cynicus Economicus' pseudonym will remain with this blog. Ideally, I'd love to know your real name, but you probably have your own very good reasons to protect your identity.Anyway, it's sad that you're leaving this blog, but good luck in academia!

Your posts will be sorely missed, thank you very much for all your hard work. I've been a long time lurker, learning on the hoof as I read your blog and the thought provoking comments. It's a shame to see you go, I feel there are so many unanswered questions, but at least you've given me the basic tools to go out on my own and recognise the wheat from the chaff.

I`ve been following your blog for a while now. I haven`t commented before. But feel moved to comment this morning. I hope you keep all your writings on line for me to re-read over them. If you do have any ideas that you haven`t written about, I hope you add them.

Congratulations on what was a well-written, thought-provoking blog, from the alternative perspective that you take. The discussions in the comments have been most productive and the process of argument itself has allowed people from both sides to understand their opponents' views in a better way.

Many thanks for the very positive messages. I have also had an email from MattinShanghai, which is as follows:

It is with great sadness that I read the latest Cynicuseconomicus post announcing your intention to suspend this blog. Let me join in the chorus of praise, and thank you for your outstanding work over the last couple of years. I will miss it and the community which grew around it greatly. I still hold out the hope that when you've had time to "recharge your batteries" and we move on to even more interesting times, you may consider resurrecting it. I'm sure this sentiment is shared by many.

You very correctly identified the fact that the underlying problem in our economies is structural years before this thinking became mainstream. Debt creation is not wealth creation, and the chickens are coming home to roost.

Regarding China, I am in agreement with the points that you made in many of your posts. Economic growth is used by the Chinese authorities as a means to achieving geopolitical and political objectives, not as a goal in itself. Most western commentators miss this vital point. The business class here is fragmented and has very little real power. This is especially true of foreigners (overseas Chinese and Westerners), who do business only on the sufferance of the state bureaucracy. This tolerance can come to an abrupt end at any time, when they are no longer seen as useful. My personal feeling is that foreigners and foreign businesses have no long term future here, although it is not clear whether "long term" means 5, 10 or 20 years.

As far as what the future holds in store for us, my outlook is just as bleak as yours. To the likely scenario of continuing economic decline of the West, I would add increasing international instability due to resource depletion, the danger of food shortages, collapse of the global trading system, social unrest met by increasingly authoritarian responses (instead of China becoming like us, we will become like China), nationalism, wars etc. etc. Pretty depressing really...

Wishing you and your readers all the best, hoping we will "meet" againMatt

A huge thank-you to you CE and your "commentators" for the clearest blog covering the ongoing financial crisis for those "who are not buying it". Here's one of this week's political cartoons about the American people not buying it too, so your message is spreading.

It would be a great shame to lose the "CE discussion community " altogether. Have you thought about rebranding the blog to include guest articles. You could call it Cynicus Economicii. What do other commentators think?

I will miss your blog. I have had many ideas that are similar to yours but I have not had the eloquence or experience to express them. Reluctantly I have to agree that it is time for you stop this blog. I have noticed that you have been struggling to find new angles on what is happening. It seems there is little more to be said. The only discussion left is to examine the perturbations on the downwards graph. The system is becoming so unstable that time predictions are becoming ever more difficult. Neither of us have been able to predict timing accurately so far. Like you I have been surprised how slowly things have happened. Like you I still fear the sudden change. Will there exist a tipping point? We will only know when it has happened.

I meet a financial advisor on Wednesday. I fear that it will be a waste of time as I doubt that he will have the perspective that can be gleaned from this blog.

I am a 60 year old independent financial adviser. I am a rare IFA that shares your views entirely about the impending crisis. I am about to resign because I cannot continue to give the advice to my clients that I want to, due to prescriptive FSA compliance regulations. This is how absurd the “system” has become. The whole Financial Services industry is in crisis because of its interconnectedness. Here’s a brilliant Map showing the Interconnection of Global financial Risks produced by the World Economic forum http://www.weforum.org/documents/riskbrowser2010/risks/

In my opinion, Cynicus’s blog is one of the best of all the blogs discussing the enfolding crisis.

Dear Cynicus, I have only ever followed two blogs. One written by a young lady living in Baghdad until a few years ago, and yours. Both have quite profoundly and sadly confirmed, in different ways, my feelings about the world in which we live. For your part (and people commenting), many thanks and all the best.

On a personal note, rather than one of economics … my life is in the Developed World. It has rarely been easy (but could have been a lot harder) and entering my forties, I have very little in terms of material wealth or belongings. However, I wake up every day so deeply thankful and happy for the life that nothing other than pure chance has allowed me to have. I fear that many people don’t and will never see how lucky they are, how easy we have (had) it. For many, enough will never be enough and then there’s nothing.

I think I can see why you've stopped. Your themes and concerns are now all mainstream or ,at least, there are other like-minded voices out there. I wish you luck on your attempt to change the system from the inside. If you suceed, the number of economists needed by society should permanently dwindle.

You said that you're not sure what the future holds . In my opinion, it'll become obvious in the next thirty years, as to whether technology ,along with the largest number of scientists and engineers who have ever existed at one time on Earth, will be able save industrial society.

CE, you will be badly missed. I have personally experienced the change from near full employment in manufacturing in the mid-eighties in my local area (Crawley- the first town in England to have zero unemployment under Maggie Thatcher) to a service only industry employing a tenth of the workforce.Now in the 21st century the few remaining companies have/are re-locating to Eastern Europe or China; sums it up really! Very best wishes to you.

Sorry to see you are packing up shop. I agree with you more than with the current consensus that the real value of an economy can be saved by (more) government spending. I've learned a lot lurking on here; it has caused me to think a great deal about what is really valuable in an economy, as well as to wonder what is so unique about our way of living compared to people who do the same jobs in the so called third world.

It strikes me that if the bubble that makes the West 'richer' really does burst were all in for a very very difficult time (to say the least). If things are as you suggest, I wonder if there will be food on western plates let alone the ability to export our supposed wealth to buy goods from third world labourers. It really does make me wonder if governments could hold society together at that point.

You haven't talked much about things really getting to that post apocalyptic moment? I would have loved to have heard your thoughts on it, but I suppose it's too bleak to even write about. I get the feeling that everyone would find it difficult to comprehend what was happening given the feeling of entitlement we all have towards our consumption driven lifestyles.

Enjoy it while it lasts I guess; lets hope that governments find a way through the debt problems over the next few years and put in real measures to pay off the debt over the next 50...

Like everyone else, CE, I am so disappointed to see the end of your blog. It does seem to me as if the stuff has just started to hit the fan. Two items on BBC World this morning

i) The new "Cigarette Lighter Problem." aka The Polo Mint Problem, a discount store in York, about a mile away from where they manufacture Polos is actually importing same from Indonesia. Even after that journey they are cheaper, much.

ii) Militant Shoppers in Greece demanding, rather than asking, for discounts in the store and one man refusing to pay the toll on the toll road and disembarking to bodily shove the barrier out of the way.

Great work! I don't think it's over, I think you just need to refresh. If you don't want to write long posts then consider micro-blogging instead i.e. using twitter. So rather than making long posts, you simply link us to articles you find interesting with very short comments.

Thank you so much for all your hard work over the years - you've taught me an awful lot, not just about economics but also the incredible patience you have shown with the many people who did not (or would not) "get it"!

Your blog has been a real inspiration to me and even though I've been off the radar for a while (having kids will do that to you!) I never fail to learn something when I come back here.

All the best for your future endeavours, make sure you let us all know how you're getting on from time to time!

I too doff my cap to you sir! Its been a pleasure, and if you're ever up in Central let me know eh?

If I was to be critical, it would only be in respect of your treatment (or lack of) of impact of other influences. The reason why the $US did fall on its arse (even though technically it should have done) is because of the might of other forms of 'capital' (political, strategic, military) not just financial. Western civilisation has a hegemonic hold on these other forms of capital, and it has used these to 'keep the wheels spinning' (but, as you say, the wheels have to stop spinning sometime soon).

I'd like to finish with Chomsky & Evans-Pritchard -

'Propaganda is to democracy what the bludgeon is to communism' Chomsky

'In the end, politics always prevails' Evans-Pritchard

How the economic crisis is politicised a the point where the US no longer feels in control is what interests me...

Sad to see this blog is stopping. Whilst not being of the Austrian school persuasion myself - I always enjoyed your blog and actually did find much common ground. I also had my mind changed on a few occasions.

The discussions btl were also amongst the most civil anywhere - another testament to your blog. I hope if things do get really ''interesting'' you will return. I will check in to see every now and again.

CE, I like everyone here was sad to see you put away your keyboard a couple of months ago and I feel that you were correct to do for the reasons you stated. It did at one point look like the MSM was finally starting to "get it" but once again they seem to have been waylaid by austerity plans and mortgage fraud and are still not looking far enough back for the root causes as you have done (I can envisage a future book along the lines of "Freakonomics" pointing out many of your insights). But there isn't much we can do about the current state of affairs, we can only plan and try to guide ourselves forward in the most acceptable manner possible. Which is were I would like to see either a resumption of the CE blog (or a new one) where you could express all your new economic learning and insights and apply it how to move forward from the mess the world is currently in (why just think small and UK?). There have been so many comments on the NWO here you might as well start defining your own CE World Order ;o)

Cynicus, it seems to me that the argument between yourself and Lord Keynes will be settled in the next five years or so.The USA (taking advantage of the US$'s reserve currency status) appears to be trying to pump the bubble up again, by deliberate deficit spending and quantitative easing. Meanwhile, European nations appear to be trying to deflate the bubble gradually by reducing their overheads and cutting their structural deficits at least. Could you perhaps reactivate this blog periodically to track the progress of these contrasting approaches?

I know next to nothing about economics, but I do know that until people here commenting on economic issues here take into account the geopolitical conditions in which the power elite is advancing their agenda, then the Lord Keynes of this blog are whistling in the wind.

It is interesting to note the latest set of (green shoot) figures are headed by the construction industry (LOL) all those affordable social housing projects carpeting green belt countryside to cope with the immigration population explosion.

Get a grip. I've been saying for ages the only engine for future growth is continued mass immigration.

Looks like Cameron's austerity measures are preparing us for the coming of third world status.

I've been following this blog almost from the beginning, I was drawn because I thought it was somewhat different from the usual blog standard fare.

Cynicus started off on the right track but allowed himself to be drawn into the quagmire of economic minutia by a certain core of commenters.

As a result, Cynicus got sidetracked away from of the emerging big picture.

In the end it all fizzled out on the treadmill of endless detail.

The most fascinating and deadly story ever to be told is unfolding daily before our eyes, to those who cannot see what is happening I'm at a loss to understand for it is all out there in full view to probe and investigate.

The time is fast approaching for a seismic shift is about to erupt.

The most perplexing about this story is the time-line, tomorrow? Next week? Months? Years?

You are more than welcome to comment on the posts, but please try to stay on topic....I will publish all comments, excepting spam and bad language, and my moderation of the comments is just to exclude these.

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I have had a request for an email address for the site and have created the following:

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For general purposes I would suggest using the comment form, but will occasionally look at this email account. Please be clear what is for publication and what is not, though I will also not guarantee publishing of email comments, unlike the comments through the form! Thanks.

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Look here for more...

Steve Tierney - a blog from a regular commentator on this blog (see comments on most posts)
Tiberius Leodis - another regular commentator, who occasionally challenges some of the points in this blog. Focused on Leeds city in the UK, and the effects of the crisis on the city (see comments on the most posts in the last few months).
Social Democracy for the 21st Century - A blog established by Lord Keynes, a long standing commentator on the blog and critic of much of the content of the blog. If you are looking for a different point of view, a good starting point. For some interesting opinion, one of the commentators on this blog publishes a blog, interestingly called The Fat BigotNZClimate

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Please note that this blog is not aimed at offering investment advice, and should not be used for this purpose. Many of the views are controversial (though increasingly less so), and the opinions of others should be considered and included in any investment decisions.